In Sylvia Henry v News Group Newspapers Ltd  EWCA Civ 19, the Claimant appealed a decision from Senior Costs Judge Hurst who refused to allow provision to depart from her approved cost budget, because of her failure to comply with the obligation to inform the Defendant of an increase to the approved costs.
The Court of Appeal unanimously allowed the appeal, overturning Judge Hurst’s decision, on the grounds that there was a good reason to depart from the approved budget and because the failure to convey to the Defendant that the original cost budget had been exceeded, did not cause the parties to be on an unequal footing.
It is important to note however that Moore-Bick LJ in the leading judgment confirmed that post-April 2013, an approved cost budget will serve as a prima facie limit on the amount of recoverable costs and it will not be an easy task to convince the Court to depart from the original cost budget. Indeed, post-April 2013, there is little sympathy for those who exceed their cost budgets.
What are the rules?
The rules are quite clear. PD 3E (7.6) says ‘Each party shall revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions’.
The test therefore to satisfy when seeking to amend the cost budget is to illustrate whether there have been ‘significant developments’.
What are significant developments?
Revising a budget upwards – Fortunately, the Court have considered the same. Unfortunately however, the threshold is high. In the case of Churchill -v- Boot (Lawtel 22/04/2016), Mr Justice Picken was asked to consider whether events in a case were sufficient to constitute ‘significant developments’ within the meaning of CPR Practice Direction 3E para 7.6.
In this matter, since the original pleadings were served, the Claimant’s pleaded case had doubled in value. Accordingly, the Claimant applied to the Court to amend his costs budget pursuant to CPR PD 3E para 7.6. The Claimant submitted that the doubling of the pleaded value of the claim, the adjournment of the trial date, and the requirement for further disclosure constituted ‘significant developments’.
The master refused the Claimant’s application, on the basis that the events did not constitute a ‘significant development’; they were predictable developments which could have been foreseen at the time of the original budget.
On appeal, Picken J upheld the Master’s original decision as he was not satisfied that there had been ‘significant developments’ in the case.
Revising a budget downwards – It is widely appreciated that the use of Cost Budgets can be a very effective tactical tool. Whilst a court will not permit a budget to be used to frustrate the legal process and a statement of truth will have to be signed, there is room within a “reasonable bracket” to make a budget a little higher or a little lower. It may be that you wish to reduce your original cost budget as it becomes clear the work was needed especially if you think you are going to lose the case and you may want to push your costs down to force the other side to reduce their costs, thereby reducing your client’s costs liability. Another advantage to lower one’s budget is to make the other side’s budget look overinflated and pressure them to reduce their costs.
An interesting point however that comes out of Churchill v Boot is that the Court’s refusal to allow a higher budget was because the developments that the Claimant was seeking to rely on could have been foreseen at the time of the original budget. In view of the same, it can be argued that the test to of ‘significant developments’ to revise a budget downwards is not quite as taxing as the test for revising a budget upwards, as the original budget did not fall foul of not providing for all potential developments. You foresaw the developments and provided for them in the budgets, they have simply fallen away.
What to do when you have exceeded your cost Budget?
The case law above is clear that it is not going to straightforward to side-step a departure from a Cost Budget, particularly bearing in mind that on conclusion of the matter when seeking your costs, a Precedent Q is required, making it very clear to the paying party the respective departures.
So, what can be done to avoid exceeding the approved cost budget and secondly once there has been a departure from the budget, can anything be done?- In view of Churchill v Boot, it is imperative that the original cost budget is drafted correctly at the outset and that all likely developments are provided for in the budget.
– Review your budget internally – When working on your file, have your budget with you and consider your respective allowances.
– Monitor your budget externally – Instruct your cost draftsman to provide an in depth analysis of the costs. Your cost draftsman will monitor your file and will be able to advise you to the penny, whether you are approaching the ‘red,’ or there already.
– If there has been a departure from the approved cost budget, then informally invite your opponent to consider an updated Cost Budget. It could be if you have exceeded your cost budget, your opponent may well have exceeded their cost budget.
– If your opponent is categorically disputing any provision for an updated budget, then you need to determine whether any ‘significant developments’ exist. Your cost draftsman will be able to advise you in respect of the same. It is important to bear in mind that as advised above, the threshold is high.
– Finally, if your cost draftsman advises you that the ‘significant developments’ test has been met, then in accordance with rules, the amended budgets should be submitted to the court together with (a) a note of the changes made and the reasons for those changes and (b) the objections of any other party. The Court may approve, vary or disapprove the revisions, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed.
What to do when you want to reduce your cost Budget?
– If you want to reduce your budget, then once again informally invite your opponent to consider an updated Cost Budget. In view of the comments above, it is unlikely that the other side can oppose a reduced budget.
– If your opponent is categorically disputing any provision for an updated budget, then in accordance with rules, the amended budgets should be submitted to the court as advised above.
In summary therefore, cost budgets need to be monitored and if the budget requires revising, particularly revising upwards, it is important to act quickly and attempt to agree a revised budget.